RIL defends natural gas discovery work against audit report

Reliance Industries Ltd., Mumbai, has refuted a critical report by the government auditor about operation of its deepwater KG D6 gas discovery, saying the project “has set a global benchmark for effective, efficient completion and cost competitiveness.”

The Indian government’s Comptroller and Auditor General (CAG) this week sent Parliament a report alleging irregularities of work conducted under the production sharing contract covering RIL’s large deepwater gas discovery on the KG D6 block offshore eastern India.

RIL has been under pressure from the Directorate General of Hydrocarbons to increase drilling in the area because production has lagged behind projections (OGJ Online, Aug. 4, 2011).

The CAG report raised questions about cost overruns, the absence of acreage relinquishment between operational phases, and structure of the PSC.

In a Sept. 9 press release, RIL cited studies by three independent consulting firms saying the company’s work under the PSC met industry standards.

“RIL commenced gas production from KG D6 in 6.5 years from discovery, in comparison to the global average of 9-10 years for similar deepwater production facilities,” it said.

The firm brought its large Dhirubhai 1 and 3 discoveries, in 600-1,200 m of water in the Bay of Bengal, on production in April 2009 (OGJ Online, May 5, 2009).

In said the independent studies found its costs not to have been overstated and to have been in line with industry norms. One of the findings was that India’s fiscal system “does not create any incentive for the contractor to indulge in overspending,” RIL said.

KG D6 is one of 21 blocks in which BP recently completed purchase of 30% interests from RIL in a deal forming a joint venture by the companies for Indian exploration and development (OGJ Online, Aug. 30, 2011).

RIL cited the BP arrangement as validation of its position in relation to CAG.

“With its newly established partnership with BP, RIL is confident of unlocking the full potential of KG D6 and other blocks,” it said.